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mmRSlTY  OF  CALIFORNIA.  SAN  DfEW 
LA  JOLLA.  CALIFORNIA 

THE    FUTURE   OF    THE 
LIMPING    STANDARD 


BY 

CHARLES    A.    CONANT 


Reprinted  from  Political  Science  Quarterly,  Vol.  XVIII,  No.  2 


BOSTON,   U.S.A. 

GINN    &    COMPANY,    PUBLISHERS 

SEfjc  ^ti)EixsEiim  '^um 

1903 


THE  FUTURE  OF  THE  LIMPING  STANDARD. 

EVENTS  are  stronger  than  theories  in  shaping  economic  ten- 
dencies. This  has  been  illustrated  in  a  striking  manner 
by  the  monetary  history  of  the  past  generation.  The  limping 
standard,  forced  by  the  logic  of  events  upon  France  and  the 
other  countries  of  the  Latin  Union  and  upon  the  United  States, 
while  deplored  by  many  in  those  countries  as  an  evil,  has  con- 
tributed to  diminish  among  the  civilized  nations  the  pressure  for 
gold,  and  has  permitted  several  important  States  to  obtain,  with- 
out too  much  difficulty,  the  supply  of  the  yellow  metal  necessary 
to  the  inauguration  of  the  gold  standard.  There  are  difficulties 
about  the  operation  of  the  limping  standard  in  the  countries 
where  it  is  now  in  force,  growing  out  of  circumstances  which 
will  be  hereafter  discussed;  but  these  difficulties  can  be  avoided 
where  the  creation  of  a  coinage  system  can  be  undertaken  in  the 
light  of  present  facts,  and  the  limping  standard  may  be  made 
the  effective  means  of  restoring  the  par  of  exchange  between  the 
countries  of  the  East  and  West,  so  long  broken  by  the  fall  in  the 
gold  price  of  silver,  and  thereby  of  forging  anew  the  link  of  com- 
mercial relationship  which  is  so  vital  to  the  prosperity  of  both 
hemispheres. 

The  hmping  standard  is  so  called  because  silver  hmps  along 
behind  gold,  without  enjoying  the  privilege  of  free  coinage  ac- 
corded to  the  standard  metal,  but  nevertheless  finding  a  large 
use  as  money,  and  kept  at  par  with  the  standard.  From  a 
theoretical  standpoint,  the  limping  standard  may  be  defined  as 
a  monetary  system  requiring  free  coinage  of  the  standard  metal, 
with  the  concurrent  use  of  token  coins  of  other  metals,  such  coins 
having  full  legal  tender  power,  but  kept  at  par  with  the  standard 
by  Government  control  of  their  output. 

The  limping  standard  came  about  in  the  countries  of  the  Latin 
Union  as  a  natural  result  of  the  wide  departure  of  the  relative 
bulhon  values  of  silver  and  gold  from  the  official  ratio  fixed  by  the 
coinage  laws.  These  causes  were  considered  by  the  law-making 
powers  of  those  countries  as  compelling  action  to  prevent  the  loss 

216 


No.  2.]  THE   LIMPING   STANDARD.  217 

of  their  gold  and  their  descent  to  the  silver  basis.  It  was  recog- 
nized in  all  these  countries  that  gold  was  the  preferred  money  of 
modern  commerce  by  reason  of  its  large  value  in  small  bulk,  its 
facility  of  transportation,  and  its  availabihty  for  foreign  trade 
and  bank  reserves.  But  it  was  recognized  from  the  beginning 
that  none  of  these  countries  could  well  afford  to  part  with  their 
entire  mass  of  silver  at  its  bullion  price,  and  that  the  attempt 
to  part  with  it  at  the  price  prevailing  at  any  given  date  would 
so  load  the  market  with  silver  bullion  that  it  could  be  sold  only 
at  a  still  greater  loss,  if  it  could  be  sold  at  all.  Events,  rather 
than  deliberate  choice,  forced  upon  the  countries  of  the  Latin 
Union  the  continued  use  of  their  silver  coins.  This  was  not 
entirely  the  case  in  the  United  States,  where  political  reasons  led 
to  deliberate  legislation  in  favor  of  silver  coinage,  but  even 
this  legislation,  badly  conceived  and  disastrous  as  it  was,  may  be 
attributed  to  the  blind  instinct  which  preferred  some  form  of  cur- 
rency during  the  days  of  national  poverty  to  the  struggle  with  the 
richer  nations  for  the  existing  stock  of  gold. 

If  the  annual  gold  production  of  the  world  had  continued 
nearly  stationary  in  the  face  of  a  growing  demand,  as  was  the 
case  from  1873  to  1888,  and  the  countries  of  the  Latin  Union  and 
the  United  States  had  deliberately  sought  to  reduce  their  silver 
coinage  to  the  proportions  of  subsidiary  money  of  limited  tender, 
as  in  the  monetary  systems  of  Great  Britain  and  Germany,  then 
indeed,  with  the  constantly  expanding  "demand  for  gold  in  the 
arts,  "the  scramble  for  gold"  which  has  been  the  nightmare  of 
bimetaUic  dreams  might  have  become  a  reality.  Such  an  influ- 
ence was  probably  more  felt  about  the  time  of  the  international 
conference  of  1881  than  even  at  a  later  date,  although  the  anx- 
iety then  expressed  on  the  subject  of  the  scarcity  of  gold  was  as 
exaggerated  as  the  fears  felt  in  1850  over  the  abnormal  increase 
of  gold.  It  was  at  the  conference  of  1881  that  the  German  dele- 
gates came  forward  with  the  suggestion  that  Germany  would 
check  her  sales  of  old  silver  bullion,  withdraw  small  gold  pieces, 
and  notes  of  small  denominations,  and  break  up  her  large  silver 
coins  into  smaller  pieces.^    It  was  of  especial  significance  that  such 

^  International  Monetary  Conference  of  1881,  pp.  20-30. 


2i8  POLITICAL   SCIENCE   QUARTERLY.  [\^0L.  XVIII. 

proposals  should  come  from  Germany,  because  that  Government 
had  refused  to  send  delegates  to  the  international  conference  of 
three  years  before.  It  was  at  the  Conference  of  1881  also  that 
Mr.  Broch,  the  delegate  of  Norway,  arguing  strongly  in  favor  of 
the  gold  standard  among  the  civilized  countries  of  the  West, 
declared  that  the  true  field  for  silver  was  to  be  found. 

Not  by  arbitrarily  raising 'the  value  of  this  metal  in  Europe  and 
America,  but  by  encouraging  its  use  in  the  countries  of  the  Orient 
which  still  have  a  pref erance  for  it ;  in  that  vast  Chinese  Empire  scarcely 
yet  opened  to  Europe,  in  that  immense  African  continent,  which  is  to- 
day invaded  from  all  sides,  and  where  trade  is  still  carried  on  under 
the  primitive  form  of  barter,  but  where  it  would  no  doubt  be  easy  to 
introduce  the  use  of  silver  money .-^ 

These  expressions  of  Mr.  Broch  anticipated  to  some  extent  the 
actual  course  of  events.  The  influence  of  the  status  quo  always 
imposes  itself  with  compelhng  force  upon  statesmen,  however  it 
may  be  disregarded  by  theorists.  In  the  case  of  the  countries  of 
the  Latin  Union  and  the  United  States,  it  was  not  possible,  with- 
out great  loss  to  the  budget  and  an  economic  upheaval,  to  sub- 
stitute gold  currency  for  the  silver  in  use.  It  was  possible  to 
rescue  the  gold  standard  from  disaster  by  taking  under  Govern- 
ment control  the  output  of  silver  coins,  and  thereby  removing  the 
premium  offered  to  the  owners  of  silver  bullion  to  deluge  the 
country  with  their  product  at  the  expense  of  its  monetary  system. 
France  elected,  or  rather  was  compelled  by  the  force  of  circum- 
stances, to  keep  in  use  her  two  thousand  millions  of  francs  of 
silver  rather  than  to  replace  it  by  gold.  The  United  States,  real- 
izing perhaps  intuitively  the  difficulty  of  withdrawing  gold  from 
nations  which  were  then  stronger  than  herself  in  the  competition 
for  surplus  capital,  pumped  silver  into  her  currency  until  the 
danger  point  was  reached  and  passed,  and  even  reasonable 
bimetallists  were  compelled  to  admit  that  the  continuation  of 
silver  purchases,  instead  of  promoting  bimetallism,  would  cast 
the  country  upon  the  reef  of  silver  monometallism. 

The  most  attractive  feature  of  the  bimetallic  doctrine  is  the 
theory  of  compensation,  by  which  the  fluctuations  in  the  supply 

^  International  Conference  of  1881,  p.  45. 


No.  2.]  THE   LIMPING   STANDARD.  219 

and  the  value  of  one  metal  are  supposed  to  be  compensated  by 
the  fluctuations  in  the  opposite  direction  of  the  other  metal.  This 
theory,  in  the  words  of  Professor  Foxwell,  rests  upon 

the  general  presumption  that  where  you  have  two  sources  of  supply, 
each  equally  likely  to  fluctuate  in  quantity,  the  joint  supply  would  be 
more  stable  than  either  of  the  separate  sources. 

This,  he  declares, 

is  the  principle  upon  which  you  would  go  in  choosing  to  select  for  a 
water  supply  two  sources  rather  than  to  leave  yourself  dependent  upon 
one,  provided  that  there  were  no  reasonable  presumption  beforehand 
that  both  sources  of  supply  would  follow  exactly  the  same  variations,^ 

Unfortunately,  even  if  this  theory  were  well  founded,  it  cannot 
be  worked  out  in  practice  without  imposing  upon  one  nation  or 
another  the  function  of  a  sink  for  the  cheaper  metal.  France 
would  undoubtedly  have  acted  as  a  parachute  for  the  fall  of  silver 
if  she  had  continued  after  1873  to  keep  her  mints  open  to  the 
free  coinage  of  the  white  metal,  but  in  doing  so  she  would  have 
witnessed  the  flight  of  all  her  gold  to  those  countries  which  pre- 
ferred the  gold  end  of  the  compensation  to  the  silver  end.  Be- 
tween France  and  any  group  of  other  nations,  the  law  of  compen- 
sation would  have  kept  the  aggregate  supply  of  money  at  nearer 
its  old  value  than  if  France  and  all  other  nations  had  adopted 
gold  and  disposed  of  their  silver,  but  the  nations  which  excluded 
silver  from  their  monetary  system  would  have  received  the  bulk  of 
the  gold,  and  France  would  have  been  burdened  with  practically 
all  the  silver. 

An  interesting  suggestion  for  obtaining  the  benefits  of  the  law 
of  compensation,  without  the  evils  of  concurrent  free  coinage  for 
two  metals  of  fluctuating  value,  was  made  some  years  ago  by 
Professor  Leon  Walras  in  a  little  pamphlet  entitled  Theorie  de  la 
Monnaie.  He  frankly  rejected  the  contention  of  the  bimetallic 
school  that  it  was  possible  by  law  to  give  absolute  fixity  of  re- 
lation to  two  different  commodities.  He  proposed  that  whichever 
happened  for  the  moment  to  be  the  cheaper  metal  should  be 

^  Professor  H.  S.  Foxwell's  Evidence  before  the  Royal  Commission  on  Agri- 
culture of  1894,  Q.  23,  838. 


220  POLITICAL   SCIENCE   QUARTERLY.  [Vol.  XVIII. 

treated  as  a  token  coin,  —  that  its  free  coinage  on  private  account 
should  be  suspended,  and  that  its  output  should  be  regulated  by 
the  Government.  Admitting  the  necessity  for  the  adoption,  under 
present  conditions,  of  a  new  ratio  between  gold  and  silver,  he 
maintained  that  silver  should  be  coined  by  the  Government  when- 
ever there  developed  a  scarcity  of  money  as  indicated  by  a  low 
mean  of  prices,  but  that  such  coinage  should  cease  before  the  se- 
curity of  the  standard  was  threatened  by  the  excessive  exporta- 
tion of  the  standard  metal.  Carried  thus  far,  his  project  was  not 
beyond  the  pale  of  the  world  of  reahties.  He  proposed,  however, 
in  making  the  project  of  universal  appHcation  without  regard  to 
time  or  space,  that  if  gold  should  again  fall  below  silver  at  the 
coinage  ratio,  then  the  mints  should  be  closed  to  the  free  coinage 
of  gold,  and  its  output  should  in  turn  be  regulated  by  the  Gov- 
ernment. An  international  agreement  he  conceded  to  be  neces- 
sary to  carry  out  this  system  without  inviting  the  evils  which 
would  follow  an  excessive  coinage  of  the  undervalued  metal  by 
any  one  nation.     He  declared  that  otherwise, 

if  the  Latin  Union  alone  resumed  the  coinage  of  crown  pieces,  the  first 
effect  of  this  resumption  would  be  to  make  all  its  gold  drift  abroad, 
and  to  leave  it  deprived  of  its  standard  money.^ 

Professor  Walras  pointed  out  that  if  these  evils  were  restricted 
by  an  international  agreement,  it  would  be  necessary  also  that  the 
principal  monetary  powers  should  regulate  their  issues  of  Govern- 
ment paper  and  of  legal  tender  bank  notes  in  the  same  way  as 
their  output  of  token  coins,  or  the  control  of  the  variations  of  the 
value  of  money  would  prove  illusory.  In  this  theory,  so  thought- 
fully worked  out  by  Professor  Walras,  lies  probably  the  intelligent 
diagnosis  of  the  end  towards  which  the  leading  countries  with 
the  limping  standard  have,  under  the  pressure  of  events,  been 
blindly  groping.  Each  of  those  countries  has  contributed  towards 
diminishing  the  pressure  upon  gold,  and  towards  the  prevention 
of  undue  changes  in  the  relations  of  the  stock  of  money  to  com- 
modities, by  keeping  in  circulation  token  coins  of  full  legal 
tender  power  up  to  the  limit  of  the  amount  demanded  by  the 
needs  of  trade. 

^  Theorie  de  la  Monnaie,  p.  80. 


No.  2.]  THE   LIMPING   STANDARD.  221 

It  is  hardly  necessary  to  combat  the  extreme  form  of  the  bi- 
metallic theory,  which  came  to  the  front  in  the  United  States  in 
the  silver  campaign  of  1896,  that  prices  are  regulated  by  nothing 
but  the  volume  of  the  standard  money,  and  that  in  meeting  the 
pressure  for  currency  all  substitutes  and  economies  count  for 
nothing.  Common  sense  indicates  that  if  the  quantitative  theory 
of  money  has  any  force,  prices  must  be  higher  if  a  community 
has  a  currency  stock  of  $1,000,000  in  gold,  silver,  and  paper  than 
if  it  has  only  one-quarter  as  much,  even  though  the  latter  be  en- 
tirely in  gold.  Intricate  as  is  the  problem  of  the  relation  of 
money  to  prices,  there  can  be  no  such  contention  intelligently 
maintained  as  that  all  economies  in  the  use  of  standard  money 
have  no  influence  in  accomplishing  the  ends  for  which  they  have 
been  devised,  in  diminishing  the  demand  for  money  and  increas- 
ing its  efficiency. 

On  its  practical  side  the  plan  of  Professor  Walras  has  been  un- 
consciously followed  by  the  countries  of  the  Latin  Union  and  the 
United  States.  They  have  encountered  difficulties,  however, 
which  justify  a  careful  examination  before  the  limping  standard 
can  be  recommended  for  adoption  in  any  new  coinage  project. 
These  difficulties  may  be  grouped  thus: 

1.  The  great  difference  between  the  bullion  value  and  the  face 
value  of  the  token  coins. 

2.  The  lack  of  adaptabihty  of  the  token  coins  to  trade  require- 
ments in  the  advanced  countries. 

3.  The  excess  in  supply  of  the  token  coins,  or  at  least  the  lack 
of  automatic  responsiveness  in  their  amount  to  the  needs  of  trade. 

I.  The  difference  between  the  bullion  value  and  the  face  value 
of  the  coins  of  the  Latin  Union  and  the  United  States  is  an  al- 
most insuperable  obstacle  to  the  substitution  of  a  pure  gold  cur- 
rency for  these  coins,  and  exposes  them  to  great  danger  of  coun- 
terfeiting. The  coins  are  now  worth  only  about  forty-five  per  cent 
of  the  value  for  which  they  pass  in  retail  trade,  and  may  be 
legally  tendered  in  payment  of  contracts  expressed  in  money.  No 
loss  to  the  creditor  accompanies  these  conditions,  but  a  heavy 
burden  is  imposed  upon  the  credit  of  the  state  in  keeping  the 
coins  at  their  face  value.  It  was  estimated  in  1898  that  France, 
if  she  had  attempted  to  convert  her  silver  coins  into  pieces  corre- 


222  POLITICAL   SCIENCE   QUARTERLY.  [Vol.  XVIII. 

spending  to  the  market  price  of  silver  bullion,  at  the  ratio  of  35  to 
I,  would  be  subjected  to  an  expense  of  about  $235,000,000.^  Such 
an  expense  has  inevitably  deterred  her  from  withdrawing  her  old 
five-franc  pieces  and  selling  them  for  gold.  The  profit  in  counter- 
feiting such  pieces  is  more  than  one  hundred  per  cent,  even  when 
the  counterfeits  contain  the  full  amount  of  fine  silver  contained 
in  the  oflicial  coins.  Many  such  counterfeits  have  been  found  in 
the  United  States,  some  of  them  containing  a  fraction  more  of  fine 
silver  than  the  amount  required  by  law,  and  their  wide  distribu- 
tion has  been  prevented  chiefly  by  the  fact  that  the  official  coins 
do  not  circulate  widely,  and  any  suspicious  appearance  of  new 
pieces  in  circulation  in  a  given  neighborhood  would  quickly  at- 
tract the  attention  of  the  agents  of  the  Secret  Service. 

In  a  country  inaugurating  a  Hmping  standard  system  under 
present  conditions,  no  such  wide  departure  of  the  bullion  value  of 
the  silver  coins  from  their  face  value  need  be  permitted  as  has 
come  about  in  France  and  the  United  States.  When  Japan 
adopted  the  gold  standard  in  1897,  the  ratio  between  gold  and 
silver  was  fixed  near  the  market  ratio  of  the  two  metals.'  This 
took  away  any  unusual  temptation  for  counterfeiting,  and  per- 
mitted the  resumption  of  gold  payments  without  disturbing  the 
relation  of  prices  and -contracts  existing  at  the  time.  A  similar 
policy  was  that  recommended  by  the  House  Committee  on  In- 
sular Affairs  in  the  Fifty-seventh  Congress,  for  adoption  in  the 
Philippine  Islands.  Mr.  Cooper,  the  Chairman  of  that  Commit- 
tee, said  regarding  the  proposed  coinage  plan :  ^ 

The  proposed  coin  would  be  of  substantially  the  same  size  as  the 
coins  now  in  use  in  the  Philippines.  It  is  made  somewhat  lighter  than 
the  Mexican  silver  dollar,  in  order  to  prevent  its  rising  above  fifty 
cents  in  gold  in  case  of  a  considerable  rise  in  the  gold  value  of  silver 
bullion.     Containing  as  it  does  385.8  grains  of  silver  of  the  fineness 

^  Darwin,  Bimetallism,  p.  51. 

^  The  report  on  the  bill  declared  that  "it  would  be  well  to  raise  the  rate  for 
our  purpose  a  little,  and  fix  it  at  one  of  gold  to  thirty-two  and  a  fraction  of  silver"; 
but  the  actual  silver  coins  were  made  only  eight-tenths  fine,  in  order  to  prevent 
their  exportation  in  case  of  a  rise  in  silver.  —  The  Adoption  of  the  Gold  Stand- 
ard in  Japan,  p.  187. 

'  Administration  of  Civil  Affairs  in  the  Philippine  Islands,  House  Report  1540, 
57th  Congress,  ist  session,  p.  7. 


No.  2.]  THE   LIMPING   STANDARD.  223 

of  0.835,  it  is  issued  at  a  ratio  to  gold  of  about  27I  to  i,  instead  of 
being  issued  at  the  rate  of  16  to  i,  which  is  the  rate  of  the  coinage  of 
the  standard  silver  dollar  of  the  United  States.  The  new  coin  is  the- 
oretically issued  at  the  ratio  of  32  to  i,  or  at  half  the  value  given  to 
silver  in  relation  to  gold  by  the  American  coinage  law;  but  it  was  not 
thought  desirable  to  coin  it  exactly  at  this  ratio,  because  of  the  possi- 
bility that  a  marked  rise  might  occur  in  future  in  the  price  of  silver 
bulHon.  If  such  a  rise  should  carry  silver  to  its  bullion  value  in  gold, 
the  coins  would  be  more  valuable  as  bullion  than  as  coin,  they  would 
be  withdrawn  from  circulation,  and  the  islands  would  be  subjected  to 
all  the  evils  of  a  famine  in  their  currency  supply.  Ample  provision 
is  made  against  such  a  rise  in  the  price  of  silver  by  the  margin  of  about 
20  per  cent  between  the  exchange  value  of  the  coin  at  the  ratio  of  32 
to  I  and  the  amount  of  pure  silver  which  the  coin  would  contain. 

It  is  unquestionable  that  if  the  limping  standard  is  to  be  made 
applicable  to  the  conditions  encountered  in  the  Orient,  it  must  be 
by  the  recognition  of  a  new  ratio  between  gold  and  silver  corre- 
sponding in  some  degree  to  the  recent  market  ratio.  The  coun- 
tries of  the  Latin  Union  and  the  United  States,  burdened  with 
many  millions  of  silver,  coined  at  the  old  ratio  of  15^  to  i  and 
16  to  I,  have  to  deal  with  a  condition  whose  difficulties  they  must 
meet  in  the  best  practicable  manner;  but  the  limping  standard,  in 
its  theoretical  application,  must  take  some  account  of  the  market 
value  of  silver,  although  it  furnishes  means  of  guarding  against 
the  fluctuations  of  this  value. 

II.  The  lack  of  adaptability  of  large  silver  coins  to  the  require- 
ments of  trade  in  the  advanced  countries  has  become  very  clear 
as  wages  have  risen  and  wealth  has  increased.  Such  a  progres- 
sive development  causes  a  natural  evolution  from  a  cheaper  to  a 
dearer  money  metal.  Silver  was  once  much  more  valuable  in  its 
relation  to  gold,  to  commodities,  and  to  labor,  than  it  is  at  the 
present  time,  even  at  the  legal  ratios  of  15I  to  i  and  16  to  i. 
When  the  power  of  money  over  commodities  was  five  or  six  times 
what  it  is  at  present,  silver  was  much  more  suited  to  the  purposes 
of  money  than  under  modern  conditions.  As  the  Vicomte  D'Ave- 
nel  declares :  ^ 

^  La  Fortune  Priv^  a  travers  Sept  Siecles,  p.  64. 


224  POLITICAL    SCIENCE   QUARTERLY.  [\'oL.  XVIII. 

The  diminution  of  the  purchasing  power  of  the  precious  metals  has 
rendered  silver  inconvenient  and  unsuited  to  a  multitude  of  uses  which 
it  formerly  served.  The  same  object  which  could  be  obtained  in  the 
year  1400  or  in  1500  for  one  thousand  grammes  of  silver  would 
demand  to-day  five  thousand  or  six  thousand  grammes.  A  kilogram 
could  be  carried  in  the  pocket,  and  five  or  six  kilograms  in  one's  va- 
lise; but  one  objects  to  five  or  six  kilograms  in  the  pocket,  and  twenty- 
five  or  thirty  in  the  valise. 

The  situation  differs,  however,  in  the  undeveloped  countries  of 
the  Orient  from  that  in  the  wealthy  countries  of  the  West.  A 
currency  which  contains  a  large  proportion  of  gold  coins  is  better 
adapted  than  a  currency  of  silver  to  the  needs  of  a  wealthy  coun- 
try; but  a  currency  which  contains  a  large  proportion  of  silver 
coins  is  best  adapted  to  the  needs  of  a  poor  country.  This  is 
because  the  standard  of  wages  and  prices  is  higher  in  the  rich 
country  than  in  the  poorer.  In  British  India,  China,  and  the 
Philippines,  where  the  wages  of  skilled  labor  are  forty  cents  a 
day  in  silver,  or  twenty  cents  in  gold,  a  pure  gold  currency  would 
leave  the  average  laborer  in  about  as  convenient  a  position  in 
making  his  retail  purchases  as  Mark  Twain  found  himself  in 
with  his  million-pound  note. 

The  smallest  practical  gold  coin  represents  in  the  Orient  the 
value  of  one  dollar,  or  the  pay  of  five  days'  labor.  It  is  obvious 
that  convenience  as  well  as  necessity  would  lead  countries  under 
'such  conditions  to  a  large  use  of  silver  currency  in  preference  to 
the  attempt  to  retain  and  use  a  pure  gold  currency.  To  neglect 
of  this  element  in  the  monetary  problem  are  probably  due  some  of 
the  embarrassments  which  have  been  felt  in  Japan  since  the  intro- 
duction of  the  gold  standard;  and  it  may  be  questioned  whether 
Russia  has  not  vaulted  too  far,  in  view  of  her  present  standard 
of  wages  and  national  wealth,  in  adopting  the  pure  gold  currency 
of  her  richer  rivals,  Great  Britain  and  Germany.^ 

^  The  Russian  delegate  at  the  International  Conference  of  1881,  fifteen  years 
before  the  adoption  of  the  gold  standard  in  Russia,  called  attention  to  the  fact 
that  half  of  what  Russia,  Austria-Hungary,  and  Italy  would  require  for  the  re- 
sumption of  specie  payments  would  be  found  if  the  gold  pieces  equivalent  to  ten 
francs  ($2.00)  and  below  were  transformed  into  silver  pieces.  —  Russell,  Inter- 
national Monetary  Conferences,  p.  287 


No.  2.]  THE   LIMPING   STANDARD,  225 

III.  That  France  and  the  United  States  have  suffered  materi- 
ally from  their  excessive  stock  of  overvalued  silver  coins,  hardly 
admits  of  serious  dispute.  In  the  United  States  a  serious  panic 
was  invoked  in  1893  by  the  large  infusion  of  silver  into  the  cur- 
rency beyond  any  natural  demand.  The  excess  of  silver  tended 
to  expel  gold  and  to  destroy  the  gold  basis  of  the  currency  system. 
The  difficulty  was  due,  however,  to  the  fact  that  the  Secretary  of 
the  Treasury  was  required  by  law  to  purchase  silver  bulhon  to 
the  value  of  $4,500,000  per  month,  and  issue  circulating  notes  for 
this  silver  without  regard  to  the  need  for  currency  in  the  markets. 
The  moment  that  the  supply  of  silver  or  silver  notes  passed  the 
limits  of  the  normal  demand,  a  progressive  deterioration  of  the 
currency  set  in.  Assuming  that  the  requirement  for  currency 
was  a  constant  quantity,  every  dollar  of  new  silver  added  to  the 
circulation  tended  to  expel  a  dollar  of  gold.  This  obviously  need 
not  occur  under  a  proper  regulation  of  the  output  of  token  coins 
by  the  Government. 

The  essential  evil  of  the  token  coinages  of  France  and  the 
United  States,  which  has  naturally  cast  discredit  upon  their  mon- 
etary systems,  is  that  their  token  coins  have  been  issued  far 
beyond  the  demand  for  them  in  the  channels  of  trade,  and,  there- 
fore, far  beyond  the  limit  of  safety.  Both  countries  have  outgrown 
the  prejudice  in  favor  of  specie  over  well-secured  paper.  Proof  of 
this  has  been  afforded  in  France  by  the  steady  accumulation  of 
silver  in  the  vaults  of  the  Bank  of  France.  From  1869,  when  the 
maximum  silver  holdings  of  the  Bank  were  593,300,000  francs 
($115,000,000),  the  silver  rose  in  1880  to  a  maximum  of  1,282,- 
500,000  francs  ($248,000,000),  and  has  ever  since  oscillated  around 
this  figure.  There  has  been  no  substantial  increase  in  the  de- 
mand for  the  white  metal  for  circulation,  in  spite  of  the  share 
which  has  fallen  to  France  of  the  great  increase  in  the  world's 
volume  of  trade  since  1880.     As  M.  Noel  declares:  ^ 

In  virtue  of  the  economic  law  which  tends  to  simplify  methods  of 
payment,  silver  was  at  first  less  sought  and  then  neglected  by  the  pub- 

^  Les  Banques   d'fimission   en   Europe,   I.,  p.    183.  —  The  maximum   silver 

holdings  of  the  Bank  of  France  in  the  year  1901  Were  1,124,400,000  francs  (S217,- 

000,000),   and  the   average   was   1,105,900,000  francs.  —  Bulletin  de  Statistique 
(February,  1902),  LI.,  p.  212. 


226  POLITICAL   SCIENCE   QUARTERLY.         [Vol.  XVIII. 

lie,  until  it  naturally  drifted  to  the  private  banks  and  from  them  to 
the  Bank  of  France,  which  serves  them  as  a  reservoir.  Of  the  two 
thousand  five  hundred  millions  of  silver  which  France  possesses,  nearly 
half  is  immobihzed  in  a  permanent  manner  in  the  reserves  of  the  Bank, 
from  which  it  never  comes  out  unless  to  immediately  return. 

In  the  United  States  the  proof  that  the  era  of  silver  has  gone 
by  is  afforded  by  the  failure  of  repeated  efforts  to  increase  the 
amount  in  circulation  and  the  ready  acceptance  of  paper  certifi- 
cates for  the  coined  pieces.  The  circulation  of  standard  silver 
dollars  was  $67,547,023  at  the  close  of  December,  1891,  and  the 
highest  point  attained  during  the  succeeding  ten  years  was  only 
$73,113,520  on  October  31,  1901.  The  circulation  of  silver  cer- 
tificates, on  the  other  hand,  rose  from  $320,817,568  on  December 
31,  1891,  to  $457,154,585  on  March  i,  1903.  Discredit  is  inevi- 
tably cast  upon  the  silver  coins  of  these  countries  because  they 
are  not  exchangeable  for  the  standard  metal  and  they  were  issued 
at  an  antiquated  ratio,  which  makes  their  bullion  value  much 
more  disproportionate  to  their  face  value  than  ought  to  be  the 
case.  Each  of  these  countries,  burdened  with  a  mass  of  silver 
issued  at  the  ratio  of  15 J  to  i  or  16  to  i,  is  compelled  to  deal 
with  conditions  as  they  are,  and  to  maintain  its  token  coins  at 
parity  by  such  measures  as  suggest  themselves  without  imposing 
too  heavy  a  burden  upon  the  public  Treasury.  A  government 
inaugurating  a  token  coinage  for  the  first  time  would  properly 
choose  a  very  different  ratio  between  gold  and  silver,  and  would 
take  measures  to  check  the  output  of  token  coins  whenever  the 
quantity  threatened  to  flood  the  channels  of  the  Treasury  receipts, 
or  to  impair  their  fixed  relation  to  the  standard. 

The  advantages  of  the  limping  standard,  under  intelligent  di- 
rection, may  be  thus  summed  up: 

1.  Diminution  of  the  pressure  upon  the  world's  supply  of  gold. 

2.  The  maintenance  of  the  par  of  exchange  between  Oriental 
and  Western  countries. 

3.  Adaptability  to  poor  or  undeveloped  countries. 

4.  The  opening  of  markets  for  silver,  with  the  result  of  steady- 
ing its  value. 

I.  The  limping  standard  has  become  since  1873  the  standard 
of  several  of  the  leading  commercial  nations  of  the  world.     These 


No.  2.]  THE   LIMPING   STANDARD.  227 

nations  are  France,  Belgium,  Switzerland,  and  the  United  States. 
The  principal  countries  which  adhere  positively  to  the  gold  stand- 
ard, with  the  use  of  silver  only  as  a  hmited  legal  tender,  are  Great 
Britain,  Germany,  and  Russia.  These  seven  nations  represent  a 
very  large  proportion  of  the  wealth  and  commerce  of  the  civilized 
world,  and  the  influence  of  their  policies  upon  the  stock  of  money 
metals  is  necessarily  great.  Of  the  total  gold  money  of  the  world, 
they  hold  almost  precisely  four-fifths,  and  even  of  the  silver 
money  they  hold  nearly  sixty  per  cent,  outside  the  great  stocks  of 
China  and  India.  The  part  which  is  played  by  gold  and  silver 
in  the  monetary  systems  of  these  seven  leading  nations  may  be 
inferred  from  the  following  estimate  from  official  sources  of  their 
stock  of  metallic  currency  on  January  i,  1901: 

Limping  Standard:  Gold  com.  Silver  coin. 

France $    810,600,000  $    421,200,000 

Belgium 17,800,000  35,000,000 

Switzerland       24,000,000  10,700,000 

United  States 1,110,800,000  655,800,000 

$1,963,200,000  $1,122,700,000 

Gold  Standard: 

Great  Britain $    511,000,000  $    116,800,000 

Germany 721,100,000  208,400,000 

Russia 724,300,000  102,500,000 

$1,956,400,000  $    427,700,000 

These  figures  show  that  while  the  countries  with  a  pure  gold 
standard  are  compelled  to  make  considerable  use  of  silver,  their 
silver  stock  is  less  than  twenty-two  per  cent  of  their  gold  stock, 
while  in  countries  where  the  limping  standard  prevails  the  silver 
coinage  is  more  than  fifty-seven  per  cent  of  the  standard  coins  of 
gold.  If  the  continued  use  of  both  metals,  therefore,  has  con- 
tributed to  steadying  prices  by  maintaining  that  law  of  com- 
pensation in  the  relative  supply  of  the  two  metals,  upon  which 
bimetallists  so  much  rely,  it  may  be  fairly  contended  that  the 
maintenance  of  the  limping  standard  in  these  four  representative 
countries  has  obviated  the  need  for  nearly  $700,000,000  in  gold 
coin,  and  thereby  diminished  by  that  amount  "the  scramble  for 


228  POLITICAL    SCIENCE   QUARTERLY.         [Vol.  XVIII. 

gold"  which  bimetalHsts  consider  to  be  so  serious  a  result  of  the 
general  adoption  of  the  single  gold  standard. 

II.  The  interruption  of  the  old  par  of  exchange  between  the 
gold  standard  countries  of  the  West  and  the  silver  using  countries 
of  the  Orient  has  been  one  of  the  most  disturbing  features  of  the 
fall  in  the  value  of  silver.  The  evils  which  it  has  caused  were 
forcibly  set  forth  by  General  Walker  in  his  discussion  of  the  sub- 
ject in  1896: ^ 

Such  fluctuations  in  the  relative  values  of  the  two  money  metals 
continually  involve  international  trade  in  embarrassment  and  disturb- 
ances of  a  most  serious  character,  and  often  reduce  it  to  mere  gam- 
bling. Without  some  tie  which  can  hold  the  two  metals  at  least  near 
to  each  other,  during  the  time  between  the  manufacture  and  sale  of 
commodities  and  the  receipt  of  the  proceeds,  the  producer  in  a  gold 
country  can  never  tell  for  how  much  silver  he  must  sell  his  goods  in 
order  to  make  himself  whole  and  perhaps  win  a  profit.  The  range 
of  possible  losses  or  possible  gains  from  this  source  is  such  as  to  be 
altogether  out  of  proportion  to  the  range  of  the  ordinary  chances  of 
industrial  and  commercial  enterprise. 

It  is  correctly  declared  by  Major  Darwin  that 

though  it  is  possible  to  insure  against  many  of  the  risks  which  are  thus 
experienced,  the  price  paid  for  the  insurance  constitutes  a  true  burden 
on  trade. ^ 

The  insurance  proposed  by  the  bimetallists  against  these  fluctua- 
tions has  been  that  all  nations  —  whether  rich  or  poor,  whether 
their  unit  of  pay  for  a  day's  labor  was  two  dollars  or  twenty  cents 
—  should  be  chained  upon  the  Procrustean  bed  of  free  coinage 
for  both  metals.  A  better  insurance  is  offered  by  the  system  of 
the  hmping  standard.  The  logic  which  makes  silver  the  most 
useful  form  of  currency  in  undeveloped  countries  points  out  the 
natural  course  to  be  pursued  by  those  countries  in  the  future  in 
adapting  their  monetary  systems  to  modern  conditions.  It  is  pos- 
sible for  all  these  countries  to  adopt  the  gold  standard,  while  re- 
taining silver  in  daily  use.  They  thus  obtain  one  of  the  essential 
advantages  claimed  for  bimetallism  by  abolishing  the  fluctuations 

^  International  Bimetallism,  p.  139  "  Bimetallism,  p.  132. 


No.  2.]  THE   LIMPING   STANDARD.  229- 

of  exchange  between  gold  and  silver  countries  caused  by  the  de- 
pression of  silver,  without  drawing  heavily  upon  the  world's  stock 
of  gold. 

Unconsciously  this  theory  has  been  worked  out  in  British  India, 
where  use  is  found  for  nearly  $500,000,000  in  full  legal  tender 
silver,  but  where  all  this  silver  is  maintained  at  a  fixed  ratio  to 
gold.     The  British  Government  by  the  Act  of  1899  established  a 
gold  fund  in  India  and  at  London,  for  the  purpose  of  maintain- 
ing the  parity  of  the  standard  silver  coin  with  gold.     This  coin, 
known  as  the  rupee,  contained  silver  worth  originally  a  little  less 
than  fifty  cents  in  American  money,  but  it  fell  gradually  to  nearly 
the  level  of  silver  bullion  until  1893.     In  that  year,  as  the  result 
of  the  report  of  the  Indian  Currency  Commission,  the  free  coin- 
age of  rupees  was  suspended,  and  the  attempt  was  made  to  fix 
their  value  at  sixteen  pence,  or  about  thirty-two  cents  in  American 
money.     At  first  the  experiment  was  difficult.     There  was  a  sur- 
feit of  rupees,  and  they  poured  out  in  great  quantities  from  hoards 
when  it  was  found  that  their  legal  value  had  been  raised  above 
their  bullion  value.     The  Government,  however,  persevered  in 
selling  exchange  on  India  at  London  as  near  the  new  ratio  as 
could  be  obtained,  and  in  receiving  the  rupees  at  that  ratio  for 
public  dues.     Under  ordinary  conditions  these  measures  would 
almost  of  themselves  have  maintained  a  limited  silver  coinage  at 
par  with  the  standard.     While  this  result  was  delayed  in  India, 
it  was  so  completely  achieved  by  1899  that  in  that  year  the  Indian 
Government  felt  strong  enough  to  establish  a  gold  reserve  and 
offer  to  deliver  silver  rupees  for  gold.     The  offer  was  not  made 
at  first  to  pay  gold  for  rupees,  but  it  was  soon  found  that  the 
limitation  of  the  coinage  had  created  a  demand  for  rupees  which 
drew  gold  into  the  Treasury  instead  of  drawing  it  out.     Com- 
menting upon  these  conditions,  the  Secretary  to  the  Government 
of  India  said  in  his  financial  statement  for  1900-01 : 

We  have  frequently  been  told,  and  with  perfect  justice,  that  we 
could  never  claim  to  have  a  true  gold  standard  in  India  until  we  were 
prepared  to  exchange  gold  for  rupees  as  well  as  rupees  for  gold.  By 
being  prepared  to  exchange,  I  do  not  mean  that  we  should  accept  a 
legal  liability  to  give  gold  for  rupees,  but  that  in  practice,  as  for  ex- 
ample in  France,   anybody  who  wanted   gold  for  internal  purposes 


230  POLITICAL   SCIENCE   QUARTERLY.         [Vol.  XVIII. 

should  be  able  to  obtain  gold  freely  without  let  or  hindrance.  The- 
orists, indeed,  argue  that  neither  France  nor  the  United  States  possess 
a  gold  standard  in  the  full  and  complete  sense  of  the  words.  But  I 
think  no  one  will  dispute  that  if  we  can  advance  to  the  same  position 
as  France  we  shall  have  attained  a  gold  standard  for  all  practical  pur- 
poses. A  year  ago  it  seemed  that  we  should  probably  have  to  sit  for 
a  long  while  under  the  reproach  of  our  critics,  and  put  up  with  what 
has  been  termed  an  "exchange  standard."  It  then  appeared  impos- 
sible that  in  twelve  months  we  should  be  paying  out  gold  to  any- 
body who  asked  for  it.  We  are  doing  so  now.  Whether  we  shall  be 
able  to  continue  to  do  so  without  check  or  interruption,  whether  now 
that  we  have  once  started  giving  gold  for  rupees  we  may  not  have  to 
suspend  temporarily,  is  not  a  matter  about  which  confident  prediction 
can  be  made.  But  it  would  be  reasonable  to  say  that  the  auguries 
are  not  unfavorable  for  our  being  able  to  pursue  the  path  on  which 
we  have  entered.  Our  position  in  respect  of  gold  is  strong.  In  India 
and  London  we  have  accumulated  nearly  ;^8, 600,000. 

In  Japan  the  same  system  of  a  silver  coinage  on  a  gold  basis 
prevails  to  some  extent.  It  is  perhaps  a  weakness  rather  than  a 
strength  of  the  Japanese  system  under  existing  conditions,  that 
the  silver  coins  are  not  full  legal  tender,  and  that  a  determined 
effort  has  been  made  to  introduce  gold  coins  into  common  use. 
The  coinage  of  the  silver  yen,  of  about  the  size  of  the  American 
standard  dollar,  was  discontinued  wdth  the  adoption  of  the  gold 
standard,  and  the  largest  silver  piece  now  issued  is  for  a  half  yen, 
or  fifty  sen.  While  the  Japanese  system  constitutes  the  logical 
application  of  the  gold  standard,  it  represents  even  more  than  the 
gold  standard  of  Russia  a  somewhat  adventurous  vault  by  Japan 
into  the  circle  of  the  wealthiest  and  most  advanced  commercial 
nations.  The  gold  standard  has  been  successfully  maintained  in 
Japan,  in  spite  of  some  obstructions  growing  out  of  over-specula- 
tion; but  it  may  be  questioned  whether  she  would  not  have  pur- 
sued the  truest  economy  by  following  the  system  of  British  India, 
in  introducing  a  gold  standard  instead  of  the  actual  use  of  gold. 

III.  For  undeveloped  countries  the  use  of  silver  in  large  amounts 
is  a  vital  necessity,  and  it  usually  comes  into  use,  even  in  the  face 
of  hostile  laws.  Silver  is  the  usual  medium  of  exchange  in  Java, 
where  a  gold  standard  exists  with  hardly  any  gold  in  use,  and  it 


No.  2.]  THE   LIMPING   STANDARD.  231 

is  the  universal  medium  in  China  and  other  parts  of  the  Orient, 
even  though  the  coins  have  to  be  sought  in  a  foreign  and  distant 
country. 

The  advantage  of  a  token  coinage  for  comparatively  poor  or 
undeveloped  countries  is  the  same  as  the  advantage  of  paper 
credit :  —  it  permits  an  economy  of  capital.  The  token  coins  are 
less  expensive  than  coins  of  the  standard  metal,  both  by  the  mar- 
gin between  their  face  value  and  their  bullion  value,  and  by  the 
fact  that  they  are  made  from  the  metal  for  which  competition  is 
less  severe.  A  country  employing  a  large  volume  of  token  cur- 
rency is  not  in  danger  of  losing  such  a  currency  by  exportation. 
The  coins  cannot  be  melted  up  for  their  face  value.  While  they 
may  have  the  character  of  gold  exchange  on  the  country  where 
they  are  issued,  they  can  only  be  converted  into  gold  by  sending 
them  back  to  that  country  in  the  form  of  coin  when  they  drift 
abroad. 

The  maintenance  of  a  token  currency,  instead  of  one  entirely 
coined  from  the  standard  metal,  is  an  interference  to  a  Hmited 
extent  with  the  automatic  play  of  the  self-interest  of  individuals 
which  prevails  under  free  coinage,  but  all  coinage  systems  are  the 
result  of  official  action  taken  to  promote  the  convenience  of  the 
community.  Constant  intervention  by  the  government  is  a  part 
of  the  existence  of  any  system,  even  where  free  and  gratuitous 
coinage  on  private  account  is  authorized  by  law.  The  advantage 
of  a  token  currency  maintained  constantly  at  par  with  the  stand- 
ard metal  is  that  the  government  takes  upon  itself  the  responsibil- 
ity for  maintaining  the  par  value  of  the  token  coins  by  means  of 
a  gold  reserve,  and  takes  the  necessary  steps  by  the  issue  of  a 
loan  or  by  taxation  to  maintain  this  reserve.  The  government 
interferes  with  the  law  of  natural  selection  which  would  lead  the 
individual  to  dispense  with  currency  in  order  to  obtain  some  more 
necessary  form  of  capital,  but  in  doing  so  brings  a  real  advantage 
to  the  community  by  maintaining  an  adequate  medium  of  ex- 
change where  it  would  not  be  obtained  under  a  system  of  free 
coinage  of  the  standard  metal  without  token  coins.  In  this,  as 
in  many  other  matters,  the  Government  may  properly  intervene 
to  obtain  a  benefit  of  great  importance  to  the  community  as  a 
whole,  but  of  a  character  which  would  not  result  from  the  free 


232  POLITICAL   SCIENCE    QUARTERLY.         [Vol.  XVIII. 

play  of  self-interest  among  individuals,  and  could  not  result  from 
it  except  by  concerted  action. 

It  is  a  principle  now  generally  admitted,  that  in  order  to  pre- 
vent exportation  the  subsidiary  coins  of  any  country  should  not 
be  of  their  full  face  value.  The  extension  of  this  rule  to  token 
coins  of  full  legal  tender  power  is  preferable  to  going  without  an 
adequate  currency,  if  the  parity  of  such  coins  with  the  standard 
can  be  made  unquestionable.  In  spite  of  the  somewhat  artifi- 
cial nature  of  such  a  project,  a  proper  system  of  token  coinage, 
with  adequate  provision  for  supplying  gold  for  export,  would 
operate  in  substantially  the  same  manner  as  a  coinage  consisting 
entirely  of  the  standard  metal.  When  an  excess  of  the  token 
currency  was  in  circulation,  it  would  come  to  the  Treasury  offices 
for  redemption  in  gold,  thereby  reducing  the  amount  of  token 
pieces  in  circulation,  and  permitting  the  surplus  withdrawn  from 
the  Treasury  to  be  exported  in  the  metal  of  international  trade. 
When,  on  the  other  hand,  a  deficiency  of  token  currency  was 
disclosed  by  the  demand  for  it,  the  deficiency  would  be  corrected 
by  the  importation  of  the  standard  metal  and  its  presentation  for 
exchange  into  the  token  coins.  This  is  the  principle  which  has 
been  adopted  with  such  success  in  India,  and  which  would  prob- 
ably be  found  efficient  in  all  the  countries  of  the  Orient. 

It  cannot  be  properly  said  that  such  a  well-organized  system 
of  token  coinage  involves  any  other  departure  from  security  or 
sound  monetary  principles  than  is  involved  in  other  extensions  of 
credit  designed  to  economize  the  use  of  the  standard  metal.  The 
principle  is  the  same  as  with  the  issue  of  bank  notes  upon  a  coin 
reserve,  and  involves  the  application  of  the  same  banking  prin- 
ciples in  the  regulation  of  the  quantity  of  the  currency  and  in 
keeping  intact  the  reserve  necessary  to  maintain  the  credit  issues 
at  an  equality  with  the  standard.  Undoubtedly,  from  a  theoret- 
ical point  of  view,  a  token  issue  of  credit  paper  secured  by  a 
proper  gold  reserve  has  most  of  the  advantages  of  a  token  coin- 
age of  silver,  and  has  also  a  much  greater  economy.  So  far  as 
paper  is  adapted  to  economic  conditions  and  popular  prejudices, 
it  should  be  introduced  in  preference  to  token  coins,  especially 
for  currency  of  the  larger  denominations.  The  poverty  of  Japan 
and  her  inability  to  maintain  gold  in  actual  circulation  have  re- 


No.  2.]  THE   LIMPING   STANDARD.  233 

suited  in  the  wide  use  of  paper,  even  down  to  the  denomination 
of  one  yen  (49.8  cents). 

The  practical  problem,  however,  with  which  statesmen  have  to 
deal,  is  the  prejudice  of  the  peoples  of  the  East,  and  many  of 
those  of  the  West,  for  a  currency  of  ringing  metal  rather  than  one 
of  paper.  The  recognition  of  money  as  a  commodity  is  instinc- 
tive among  primitive  peoples,  and  leads  them  to  prefer  a  form  of 
money  which  possesses  tangible  value  in  itself,  and  permits  a  more 
satisfying  form  of  ostentation  than  the  display  of  a  roll  of  bank 
bills.  The  adoption  of  a  token  coinage,  possessing  an  exchange 
value  approximating  its  bullion  value,  promises  to  be  the  most 
important  step  which  can  be  taken  in  our  time  in  educating  the 
undeveloped  peoples  to  the  true  function  of  money  and  credit, 
and  the  final  evolution  of  a  bank  note  currency  resting  upon  an 
adequate  gold  reserve.  MetaUic  tokens  cannot  be  entirely  dis- 
pensed with,  even  among  the  advanced  nations.  There  are  rea- 
sons connected  with  the  standard  of  wages  and  living,  and  the 
risks  of  destruction  by  weather  and  insects,  which  make  them 
naturally  preferable  to  paper  in  certain  tropical  and  undeveloped 
countries.  Where  the  bulhon  value  of  the  coins,  moreover,  is 
only  slightly  below  their  face  value,  a  token  coinage  gives  more 
solidity  to  the  currency  system,  and  is  less  likely  to  result  in  de- 
mands for  the  standard  metal,  than  the  premature  adoption  of 
the  highly  organized  gold-credit  currency  systems  of  the  nations 
of  the  West. 

IV.  Injurious  as  the  limping  standard  has  proved  in  some  re- 
spects to  the  monetary  interests  of  the  countries  of  the  Latin 
Union  and  the  United  States,  the  logic  of  events  has  perhaps,  as 
already  suggested,  been  wiser  than  abstract  theory.  If  the  single 
gold  standard  had  been  adopted  in  all  countries  in  the  form  in 
which  it  prevails  in  Great  Britain,  without  regard  to  their  scale 
of  wages  and  prices  or  their  surplus  capital  available  for  invest- 
ment in  the  tool  of  exchange,  there  would  undoubtedly  have  been 
a  much  more  severe  pressure  upon  the  world's  supply  of  gold 
than  has  actually  been  felt.  This  pressure  would  probably  have 
drawn  the  metallic  medium  of  exchange  to  the  richer  countries 
from  the  poorer,  and  left  the  latter  impoverished  in  their  means 
of  carrying  on  transactions. 


234  POLITICAL   SCIENCE   QUARTERLY.  [Vol.  XVIII. 

It  would  have  caused  a  still  further  fall  in  the  value  of  silver 
by  diminishing  the  demand  for  it.  But  a  large  market  would  be 
opened  for  the  white  metal  if  the  limping  standard  should  be 
adopted  upon  a  scientific  basis  in  the  countries  which  are  now 
without  a  currency,  or  are  laboring  under  the  difficulties  in  their 
relations  with  gold  countries  caused  by  the  single  silver  standard. 
Such  a  system  would  be  an  almost  unlimited  blessing  to  these 
less  advanced  countries  for  many  years  to  come,  and  would  make 
their  transition  to  a  gold  currency  almost  absolutely  automatic  if 
the  scale  of  wages  and  living  increased  the  demand  for  gold  and 
checked  the  demand  for  silver.  The  operation  of  a  proper 
Treasury  redemption  system  would  disclose  from  time  to  time 
the  demand  for  either  metal,  and  the  coinage  of  silver  could  be 
enlarged  or  suspended  as  the  demand  for  it  rose  or  fell.  If  silver 
gradually  fell  into  disuse  by  a  rise  in  the  scale  of  wages  and  na- 
tional wealth,  the  suspension  of  coinage  could  be  continued  in- 
definitely, as  at  present  in  the  countries  of  the  Latin  Union,  and 
all  increments  to  the  metallic  circulation  would  be  made  there- 
after in  gold. 

Perhaps  the  most  interesting  deduction  to  be  drawn  from  what 
has  preceded  relates  to  the  provision  to  be  made  for  their  future 
monetary  systems  by  Mexico  and  China.  Mexico  lingers  almost 
alone  under  the  domain  of  the  silver  standard,  and  her  merchants, 
as  a  result,  suffer  from  all  the  fluctuations  in  exchange  and  the 
timidity  in  the  entry  of  foreign  capital  which  have  marked  the  re- 
cent history  of  other  countries  which  have  hesitated  to  adopt  the 
gold  standard.  By  means  of  the  hmping  standard  it  is  possible 
for  Mexico  and  China  to  adopt  a  gold  basis  for  their  currency 
without  imposing  any  serious  pressure  upon  the  world's  supply  of 
gold,  or  subjecting  themselves  to  a  heavy  loss  in  marketing  their 
silver.  In  the  case  of  Mexico,  it  would  only  be  necessary  to  adopt 
a  new  gold  coin  representing  about  the  present  gold  value  of  the 
Mexican  silver  peso,  and  to  substitute  for  the  peso  a  new  silver 
coin  of  about  the  same  weight  as  the  old.  Mexico  is  in  an  un- 
usual position  in  respect  to  her  silver  pesos,  in  that  they  consti- 
tute the  circulation  of  China,  the  Straits,  and  other  parts  of  the 
Orient.  She  could  not  afford  to  give  a  fixed  parity  to  her  old 
coins,  because  if  this  parity  were  even  a  fraction  above  the  gold 


No.  2.]  THE   LIMPING   STANDARD.  235 

value  of  the  coins  she  would  have  to  deal  not  only  with  her  own 
circulation,  but  with  that  of  the  entire  East.  If  she  offered  to  ex- 
change gold  for  silver,  or  even  to  receive  the  old  coins  at  a  high 
gold  parity  for  pubhc  dues,  she  would  invite  a  deluge  of  silver 
in  exchange  for  gold  with  which  even  the  strongest  nation  could 
hardly  cope.  By  substituting  a  new  coin  for  the  peso,  however, 
and  making  only  the  new  coin  receivable  for  pubhc  dues,  and 
redeemable  in  gold  at  the  new  official  ratio,  she  would  avoid  the 
disturbance  to  wages  and  prices  which  would  follow  the  adoption 
of  a  new  unit,  or  the  attempt  to  raise  her  existing  coins  to  a  gold 
footing. 

In  China  the  possibility  of  establishing  the  gold  standard  would 
possess  the  fascination  of  one  of  the  most  interesting  experiments 
ever  tried  in  economic  history,  worked  out  upon  a  field  larger 
than  that  presented  by  any  other  country  of  the  world.  It  prob- 
ably would  not  be  advisable  for  China  to  undertake  for  many 
years  to  offer  gold  for  silver  on  demand,  but  if  a  distinctive  na- 
tional coinage  of  silver  were  established,  it  could  be  maintained 
substantially  at  a  gold  par.  Great  quantities  of  this  silver  would 
undoubtedly  be  absorbed  in  the  interior  trade  of  the  country, 
especially  as  it  developed  under  the  stimulus  of  Caucasian  enter- 
prise. The  only  points  at  which  the  silver  coins  would  come  in 
contact  with  the  gold  standard  would  be  at  the  treaty  ports.  If 
they  were  received  everywhere  in  China,  however,  for  pubhc  dues, 
at  a  fixed  gold  parity,  they  would  rarely  sink  anywhere  materi- 
ally below  their  gold  value.  The  Chinese  Government,  in  regu- 
lating the  output  of  new  silver  coins,  would  be  able  to  rely  upon 
the  fluctuations  in  foreign  exchange  at  the  open  ports.  Under 
such  a  system  the  fluctuations  of  exchange  might  be  somewhat 
wider  than  between  two  gold  standard  countries,  but  if  the  issue 
of  silver  was  suspended  whenever  the  exchange  was  unfavorable 
these  fluctuations  would  probably  not  be  great.  It  would  be 
possible,  moreover,  to  establish  at  the  treaty  ports  small  gold 
funds,  or  to  sell  drafts  upon  gold  funds  at  London  and  the  other 
commercial  centres  of  the  West.  These  gold  resources  could  be 
employed  sparingly  by  the  Chinese  Government  to  provide  gold 
for  export,  and  thereby  to  maintain  something  like  a  par  of  ex- 
change without  holding  out  the  offer  to  give  gold  to  all  comers. 


236  POLITICAL    SCIENCE   QUARTERLY.         [Vol.  XVIII. 

This  would  be  practically  the  system  pursued  by  the  Bank  of 
France  and  the  Government  of  British  India. 

The  necessary  condition  of  such  a  system  is  Government  con- 
trol of  the  coinage.  It  is  this  which  differentiates  the  limping 
standard  from  free  coinage,  and  permits  a  value  to  be  given  to 
coined  money,  which  is  different  from  its  value  as  bullion  because 
of  the  specific  demand  for  coined  money  as  a  medium  of  exchange 
and  in  the  execution  of  legal  tender  contracts.  The  importance 
of  this  principle,  that  limitation  of  the  quantity  of  a  commodity 
in  the  face  of  a  given  demand  will  raise  the  value  of  the  com- 
modity, has  too  often  escaped  the  attention  of  the  advocates  of 
unlimited  issues  of  silver  and  of  Government  paper.  Just  so 
much  currency  as  is  needed  for  use  at  its  current  value  will  be 
absorbed  by  the  community  without  depreciation  in  its  value. 
In  the  case  of  money,  when  the  quantity  exceeds  the  complex 
demand,  depreciation  in  value  sets  in,  —  first  in  the  rate  paid  for 
the  rental  of  money,  which  draws  the  surplus  abroad  to  earn 
higher  returns  if  the  money  is  of  a  sort  accepted  everywhere;  and 
second,  in  the  depreciation  of  its  exchange  value  if  the  excessive 
quantity  continues  to  confront  only  a  limited  demand.  Govern- 
ment control  of  the  tools  of  exchange  involves  dangers  which  are 
not  to  be  lightly  put  aside;  but  under  such  a  system  as  is  here 
proposed,  there  would  be  little  temptation  to  issue  token  coins 
in  excess  of  the  demand,  because  the  profit  would  not  be  large, 
and  the  penalty  would  be  swift  in  coming,  and  glaringly  plain  to 
the  public,  in  the  flight  of  gold,  and  the  imminent  risk  that  the  par 
of  exchange  would  be  broken  with  all  other  commercial  nations. 

In  some  such  system  as  this,  which  links  silver  to  gold  by 
measuring  the  value  of  the  cheaper  metal  in  the  dearer,  is  to  be 
found  the  most  scientific  and  the  most  practicable  solution  of  the 
monetary  problems  of  the  future  in  the  countries  which  are  being 
opened  to  the  influences  of  Western  civilization.  The  difficulties 
of  wide  fluctuations  in  exchange  are  swept  away,  or  at  least  greatly 
minimized,  without  imposing  upon  either  the  gold  or  silver  coun- 
tries of  to-day  a  system  ill  adapted  to  their  domestic  needs.  It 
was  declared  by  the  British  Gold  and  Silver  Commission  of  1888:^ 

^  United  States  Senate  Misc.  Doc,  34,  50th  Congress,  2nd  session,  p.  85. 


No.  2.]  THE    LIMPING   STANDARD.  237 

Everything  which  hampers  complete  freedom  of  Intercourse  between 
two  countries,  or  which  Imposes  on  it  any  additional  burden,  is  un- 
doubtedly an  evil  to  be  avoided  or  removed,  if  possible.  If,  therefore, 
a  remedy  could  be  devised  to  accomplish  this  end  without  involving 
the  risk  of  other  disadvantages,  there  cannot  be  two  opinions  that  it 
would  be  worth  while  to  apply  such  a  remedy. 

To  this  declaration  Major  Darwin  makes  the  addendum  that 

Either  bimetalhsm  or  universal  monometalhsm  would,  without  doubt, 
effect  a  complete  or  almost  complete  cure,  and  the  question  in  each 
case  is  whether  the  remedy  is  practicable,  and  whether  its  accompany- 
ing disadvantages  do  not  outweigh  its  undoubted  merits.^ 

The  "accompanying  disadvantages"  have  thus  far  proved  too 
serious  to  permit  the  extension  of  a  pure  gold  currency  or  of  bi- 
metallism throughout  the  world.  The  experience  of  British  India, 
and  the  plan  adopted  by  the  United  States  for  the  Philippine 
Islands,  point  the  way  for  another  solution  of  the  problem  more 
in  harmony  with  local  conditions  in  all  countries  and  with  the 
historical  evolution  of  money.  This  system  not  only  affords  a 
uniform  monetary  standard  for  foreign  trade  among  all  nations, 
but  has  many  of  the  advantages  attributed  by  its  advocates  to 
bimetallism  in  compensating  the  scarcity  of  gold  by  opening  the 
reservoir  of  the  world's  supply  of  metallic  money  to  the  steadying 
current  of  silver,  with  the  limitation,  however,  only  that  the  sluice 
gates  may  be  closed  if  the  new  current  threatens  to  raise  the 
common  stock  above  the  level  of  safety,  and  to  spread  ruin  over 
the  fertile  fields  of  commerce  by  driving  the  standard  metal  from 
the  reservoir,  and  supplanting  it  with  the  more  volatile. 

CHARLES  A.   CONANT. 

New  York  City. 

^  Bimetallism,  p.  133. 


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